Abstract

Joseph Schumpeter is the father of evolutionary economics and the origin of notion that technical change is the key to capitalism as an engine of economic growth. His most famous book is Capitalism, Socialism and Democracy (1942) which develops the thesis that capitalism is always an evolutionary process of creative destruction. When this book was published fifty years ago, there was little solid scholarship on technical advance. Now there is a great deal, so much so that it would take a book to do justice to it. Nevertheless, Schumpeter's book correctly captures many of the stylised facts about technical progress revealed in recent research but, oddly enough, he never discussed, or even mentioned, intellectual property rights and this despite the fact that patent legislation was a prominent subject of debate in nineteenth century economics. This is a puzzle I hope to resolve in this paper.

Abstract

The ten papers in this book were first presented at the SERCI annual congress in Madrid in 2002. In her introduction to the volume, co-editor Wendy Gordon notes that the technology that enables us to preserve and make reproductions of creative works changes the entire cultural landscape, as it provides authors with a means of earning income from the general public as consumers, and not just from patronage appointments. This shift in the source of income will change the kind of works that are created. Importantly, "it was to harness the extra value enabled by technology that copyright was invented" (p. xviii). It is therefore appropriate that much of this valuable volume of new research on the economics of copyright is concerned with the response of copyright policy and market contractual arrangements to changing technology.

Abstract

This paper provides an overview of economic approaches to the pricing of mechanical royalties for copy-protected music works. It argues that principles for such pricing can be provided usefully from principles of pricing access to essential facilities. In particular, the structure of the royalty should be such that the royalty level does not change if the business model of downstream entities (notably, digital music streaming platforms) changes (i.e., neutrality) and the level of the royalty should ensure that the copyright holders receive a return in excess of their next best alternative in reaching consumers (i.e., opportunity cost). Ways of using benchmarking to derive the relevant opportunity cost are then discussed including the use of methods inspired by economic bargaining approaches such as the Shapley Value.

Abstract

The record industry has become emblematic in debates on reforming copyright law. Economists have mainly studied the extent to which a surge in unauthorised copying is destroying the industry by displacing demand for authorised copies. The effect of technological change on industry structure has received little attention. This paper presents evidence for an extraordinarily high number of market entries by small record companies during a severe recession in the German market for phonograms. This finding is more consistent with a restructuring of the record industry in the context of technological change - i.e. creative destruction - than with plain destruction due to diminished appropriability. If that is the case, isolated attempts to reinforce copyright protection could be misguided. They should be complemented by efforts to promote innovation within the record industry.

Abstract

The issue of what price should be set for the music input to radio broadcasts has been hotly debated recently in several countries, including USA, Canada and New Zealand. Since music is subject to copyright, this is an issue that is of great importance to the economics of copyright. The central point is the fact that, because of the economic efficiency that is gained by collective management and blanket licencing, the copyright holders in music are represented by a single bargaining unit. The ensuing monopoly power is often seen to be detrimental to social efficiency, and so in exchange for allowing the collective to form and operate, the price at which it grants access to its repertory is regulated. The regulated price should be set at a fair and equitable level. In this paper, the Shapley methodology is used to attempt to provide such a tariff.

Abstract

There are many gaps between what economists know and what they don't know. This article reviews this situation in the light of what policy-makers say they want to know about the economic effects of copyright. The article sets out what I see as misunderstandings on the part of policy-makers as to what economics can offer in the way of evidence on copyright. The paper is based on my limited experience of advising and consulting as well as on reading calls for evidence in policy documents.

Abstract

Research on the economic history of copyright and music publishing turned up an unusual source of data on the value of copyrights, namely detailed accounts of public auctions of musical items that were held in London between 1794 and 1960 of, inter alia, copyrights and the engraved plates from which musical works were printed. The standard contract between song writers/composers and music publishers in the 19th century bought out all rights and therefore the sale of the plates was also the sale of the copyright to the work, enabling the new owner to print and distribute the work. The sales also facilitated entry into and exit from the industry.
This paper describes the historical circumstances of copyright and the market for printed music and presents some of the more notable data, with calculations of their present day values. Though insufficient for a full statistical analysis, the paper provides some hard evidence of the asset value of copyright in musical works as perceived by the music publishers of those times. The paper also suggests a basis for further research.

Abstract

This paper discusses copyright compensation systems (CCS) -- that provide licenses for downloading and non-commercial use of copyright works in return for a fee -- in the light of welfare economics and transaction cost economics. Recent empirical studies suggest that CCS could improve social welfare at least for recorded music. The general theme of the theoretical discussion in this paper is a simplicity-flexibility trade-off. On the one hand, CCS seek to reduce the costs of administering and trading copyrights online. On the other hand, standard copyright licenses distort the market mechanism. This paper discusses the costs and benefits of various CCS proposals compared to alternative ways of managing copyright online.

Abstract

Digitization has had a profound effect on the management of musical copyrights in terms of data requirements and has vastly increased the volume of transactions: both impacts have raised net costs of administration to collecting societies. This paper explores these points using information provided by PRS for Music, the UK's collecting society managing musical rights and considers them in the wider context of moves on the political front to increase competition in rights management as well as to promote multi-territorial licensing within the EU. An important question for economists is whether the natural monopoly argument for single national collective rights management using blanket licensing still holds up with digitization of music and management of musical rights. This paper suggests that collaborative concentration may be preferable to competition.

Abstract

This paper argues that the emphasis by policy-makers on creativity and economic growth in the creative industries, fostered by copyright law, is not well grounded and cultural economics gives little support for these policies.

Abstract

Under current copyright law in many countries, Internet Service Providers (ISPs) can be found liable for the traffic on the websites that they host. While the ISPs themselves are not undertaking acts that infringe copyright, indirect liability asserts that they either contribute to, or encourage in some way, infringing activities, and thus they are liable to claims of indirect involvement by the affected copyright holders. The present paper explores indirect liability in a standard principal-agent setting, where both moral hazard (the act of monitoring) and adverse selection (differential costs of monitoring over ISPs) are present. The model considers the kinds of contracts that could be signed between the copyright holders (acting through a collective) and the ISPs (acting individually). We specify the contracts that are self-selecting and incentive compatible for the set of feasible scenarios.

Abstract

Social progress depends on the realization of inventive ideas, and economic history provides valuable lessons about creativity in technology and culture. The empirical study of over one hundred thousand innovative individuals who obtained patents, copyrights, and prizes, sheds light on the relationship between institutions, incentives, and transformative ideas and expression, over the past two centuries. The European growth model assumed useful knowledge was scarce, and top-down administered innovation systems offered rights and rewards to "exclusive" groups. By contrast, American policies regarded creativity as widely distributed in the general population, and further promoted "inclusive" market-oriented mechanisms that fostered diversity in ideas and outcomes. The evidence suggests that property rights in patents facilitated markets in ideas, and ensured that returns were aligned with productivity and market demand. Whereas, such administered systems as innovation prizes and publisher's copyrights in the "creative industries" benefited the few rather than overall social welfare.

Abstract

Our objective in this paper is to develop a methodology to infer from the behaviour and choices of broadcasters the "competitive" value they attach to the use of music, more precisely sound recordings, and to derive from such an inferred value the proper "competitive" copyright payments to be made to authors, composers, performers, and makers of sound recordings. We illustrate the methodology by applying it to Canadian data. The background is provided by the statement of case and supporting proof presented in the 2004 proceedings before the Copyright Board of Canada on the commercial radio tariff. The results called for a significant increase in copyright payments by Canada's commercial radio industry: the proper competitive copyright payments should be substantially more than double what the industry was paying at the time of the hearings.

Abstract

Digital Rights Management (DRM) is employed by firms as a way of reducing illegal copying. In this paper we investigate the idea that it can also be associated with an increase in market power in the hardware market. In our main analysis content and hardware are complementary goods, where there are multiple hardware sellers and one of the hardware sellers owns a DRM technology that can be developed into a DRM system that makes legal content incompatible with hardware that does not employ the system. Our primary result is that the hardware producer who initially owns the DRM technology may employ closed DRM to gain market power in the hardware market because this is an efficient way to monetize its initial ownership of the technology. We also show that, depending on whether or not the content developer has positive bargaining power, the introduction of DRM may or may not result in an increase in content development. In addition to investigating these ideas in a number of related theoretical settings, we also consider the social welfare aspects of the argument and discuss its relevance for understanding the early history of Apple's iPod.

Abstract

The idea of alternative compensation methods for recording artists has gained increasing popularity as Internet copying has started to seriously threaten record sales. We start this article by looking at the general theory on alternatives to copyright royalties and show that recording artist income is in practise not dependent on record sales. Then we move forward and map the features of the current alternative proposals and construct yet another iteration of a levy-based compensation method. As an example, we analyze what our model would imply for Finland. In the end we reflect on the idea of a levy-based compensation method to the current predictions of technical advances in communication networks and note that the traditional copyright royalty model is seriously threatened by tremendous personal copying covering practically all the music ever created. We conclude this article by discussing what this will mean for the alternative compensation proposals and the music industry in general.